Fundraising and Funds Dissemination/WMF staff memo

This memo was requested by the Board of Trustees and was written and compiled by some members of the WMF's staff. Please do not edit this page, but please DO suggest changes on the talk. Philippe (WMF) 16:33, 15 February 2012 (UTC)

We appreciate the ongoing conversation about local payment processing and offer the following five considerations in this discussion as we look for the best solution for our movement roles and our mission.

Our surveys suggest that the current mixed fundraising model may not necessarily reflect donor or editor intent.

This consideration is based on the following: (i) the 2010 Donor Survey;[1] (ii) the OMP 2010 New York area focus group;[2] (iii) the 2011 German Donor Survey;[3] and (iv) the April 2011 Editor Survey.[4]

60.5% of respondents in the 2010 Donor Survey want their donation to go to the Wikimedia Foundation. 6.3% want to donate to a local chapter; 15.5% want to split equally; and 17.7% weren’t sure.[5]

The 5,073 respondents to the April 2011 Editor Survey support 7% of funds donated to the WMF going to support chapters with the balance going to technical operations and feature development, support for new editors, community work in support of healthy editing culture, support for experienced editors, and grant making to chapters and similar organizations.[6][7]

73.3% of 2010 Donor Survey respondents,[8] all of the OMP 2010 focus group,[9] and 68.3% of the participants in the 2011 German Donor Survey[10] suggest that a factor motivating their donation is that it is important to keep Wikipedia free of advertisements.

96.7% of the 2011 German Donor Survey respondents state that keeping Wikipedia free of cost is important to them.[11] This is roughly equivalent to the 90.2% of the 2010 donor survey respondents who valued keeping Wikipedia free for all users.[12]

89.6% of donors in the 2011 German Donor Survey: “my donation should above all safeguard the availability of Wikipedia.”[13]

When viewing intent for use of donor dollars, the 2011 German Donor Survey reflects that roughly 80% of donors agree that funding technological improvements is important.[14]

These data of course are not intended to discredit chapters and the good work they do but to suggest that, according to our surveys, which can be limited in their purpose, donors tend to identify strongly with the objectives of an "operating Wikipedia."[15]

With the world’s largest non-profit website, Wikimedia has a unique opportunity to payment process globally unlike any other charity.

We should not forget that Wikimedia hosts the world’s largest non-profit website based on unique visitors. This asset presents an unprecedented opportunity to fundraise and payment process efficiently and effectively on a global basis.

Comparisons are limited, given how unusual Wikimedia is in this space. That said, we do note that Internet-based international nonprofits, albeit with smaller individual donor programs than WMF, do collect money globally and centrally.[16] Examples:

Avaaz[21] (annual revenue $6.7M,[22] 13M members[23]) fundraises globally and process payments through Givengain and PayPal. Due to its status, donations to Avaaz are not tax deductible in any country.[24]

Charity: Water[29] (annual revenue $16.03M[30]) fundraises globally and process payments through PayPal. Charity: Water notes that donations made from outside the U.S. are not tax deductible.[31]

Some global charities do operate an umbrella organization where independent in-country organizations fundraise and transfer some monies to the umbrella organization for global programs. Examples: Red Cross, Médecins Sans Frontières, United Way.

This umbrella structure was put in place before the existence of global non-profit internet platforms (like Wikimedia) . Most of these traditional organizations grew up as somewhat disconnected movements and have struggled in recent years to integrate. Red Cross USA reports that its global organization is seeking to construct a global Internet fundraising platform.[32]

Many of these charities maintain resources - such as personnel and equipment - in local countries to address core functions. For Wikimedia, many of the core functions - such as technology - are more the responsibility of the Foundation than the chapters.

We should guard against potential corruption that global NGO networks have experienced in the past.[33]

These global networks have required significant governance and oversight.[34]

The local offices of these networks are generally quite mature in their development and process.[35]

For example, the International Olympics Committee raises money globally (primarily through licensing of their trademark) to share among numerous “chapters”: international sporting organizations and national Olympics committees.

Through Global Collect and other payment processors, WMF can offer local payment services in local currencies.[36] We do not have international conversion fees since we can keep donations in original currency and then redeploy back to in-country organizations. Our bank does not charge WMF transfer fees.

WMF prioritizes working with chapters to create donation pages and messaging that are informed and improved by local custom, issues and idiom. Local teams will be able to develop local solutions: any proposed model would rely on in-country consultation and customization. To date, however, chapters have chosen to rely mainly on WMF messaging instead of local versions.[37]

There are real costs associated with fundraising with local payment processing, including servers, compliance, insurance, audits as well as chapter and WMF resources.

The German and UK chapters report an approximate 6% cost of fundraising. Based on that percentage, the reported dollar amounts would be approximately $290,000 for the German chapter and $78,781 for the UK chapter.[38]

DE, UK, FR, and CH have provided their fundraising cost projections, which are set out here. The material difference between these projections and those of the WMF are primarily the costs of paid staff. From our perspective, cost projections must take into account governance controls as well as these FTE considerations.

We anticipate lost opportunity costs associated with local messaging - that is, complete transparency with donors that their donations are going to a local chapter - as opposed to a more general and global message.

Significant gains were achieved in 2011 with respect to countries that switched from chapter payment processing to WMF payment processing. In 2010, the donation pages for Russia, Australia, Austria, Italy, and Sweden prominently stated that donors were giving to the chapter. In 2011, the WMF payment processed instead in those countries, removing the messaging about giving to the chapter. This change in messaging may be one factor in WMF payment processing that led to the following gains:

Advertisement of local tax-deductibility on a donation page increases locally-driven donations compared to a page with no such advertisement, but the lack of tax-deductibility does not hinder WMF’s ability to raise money quickly to meet global budgetary needs.

We do not see strong evidence that tax deductibility has a significant effect within the range of our average donation (about $20 or Euro 20).[41][42] Based on available data and experience, we are estimating that local tax deductibility increases overall contributions by about 5%.

A survey of international readers found that 4% saw lack of tax deductibility as a reason for not donating to the Wikimedia Foundation.[43]

The 2011 editor survey found that 6% chose not to donate for similar reasons.[44]

Some argue that local tax deductibility is a major factor in encouraging donors to give. Our fundraising experience, however, in other countries ranging through Europe, Japan, and Canada shows that we are able to raise significant sums that meet our budgetary needs without offering local tax deductibility.[45]

Example: In Italy, the 2010 donation page called out tax deductibility prominently: https://wikimediafoundation.org/wiki/WMFJA1/IT . In 2011, WMF did not offer tax deductibility. We had a 151% increase in IT from 2010 to 2011 for the overall campaign[46] and a 331% increase in fundraising efficiency (i.e. when comparing the effectiveness of the first week of Jimmy appeals from each year).[47]

In place of tax deductibility, the UK has “Gift Aid”, by which local fundraising is “topped up” by the government. This benefit allows qualified donors to make a “Gift Aid” declaration, which eventually results in a 25% contribution from the government to the charity.[48]

We should not assume - and the UK chapter does not suggest - that UK Gift Aid will increase donations by 25% in the UK. The Charity Aid Foundation reports that, overall, 42% of donors used Gift Aid in 2010/11. For those giving under 10 GBP (approx. $15.80), the rate was 23%; for those giving between 10-25 GBP, the rate was 45%.[49] These are general numbers which are not tailored to any specific situation.

The UK chapter estimates that, with about a 40% response rate this year, Gift Aid will likely add an additional 10% to what was donated online in 2011-12.[50]

Based on experimentation this year and anticipated process improvements next year, the UK chapter is optimistic that the amount of recovered Gift Aid would increase next year.[51]

Costs in administrating a Gift Aid program need to be compared with the benefits of the program.

Historically, there were significant administrative costs in maintaining a Gift Aid program.[52]

New 2012/13 rules have been designed to ease the administrative burden for charities that collect small donations under Gift Aid.[53]

If the loss from tax deductibility became a major consideration in fundraising, WMF could recapture its value in two different ways:

Assuming a 10% value and a $8.5 million fundraising base (for DE, UK, FR), we estimate that WMF could obtain the same value (about $850K) by doing one of two things: (1) WMF could run 6 additional days of Jimmy and Brandon ads during the regular fundraising period; or (2) WMF could keep the same ratio of Jimmy and Brandon ads but run the overall fundraising campaign about 3 days longer.

WMF could establish a charity corporation in Europe to take advantage of tax deductible donations there (though there would be significant set up costs). We feel extending the campaign would be more appropriate unless we had other needs for such a corporation.

Generally, the transfer of funds from WMF to key chapters do not face significant legal, regulatory, or tax barriers (which is not always true the other way around).

Our preliminary legal review of the 36 countries where we have international chapters indicates that transferring funds from WMF to the chapters is generally easier than or the same as transferring funds from chapters to WMF: 20 countries showed a preference for transfers from WMF; 15 were without significant issue either way (12) or needed more information for a firm decision (2); 1 was bad for transfers either way. (This was a subjective analysis since many variables are usually at play in each country.) [54]

5 were neutral with no strong preference either way (DE, UK, IT, NL, AU). (Please note that there is not a 50% restriction on funds for the UK as reported in Appendix E).

1 was bad either way (RU).

There are countries where the chapter arguably is required by law to keep a portion of their donations, such as 50% of the donations given to FR chapters. In those cases, depending on the Board's final resolutions in the matter, the FAC advisory board may be asked to direct or recommend the use of those portions of donations.

In some cases, the FAC advisory board cannot direct use of those donations since it arguably may interfere with the legal authority and fiduciary duty of the local chapter board.

In some cases, the advisory board may be able to request or recommend use of those donations. However, local laws arguably may mandate that the request or recommendation be freely received and considered.

↑The question asked did however provide descriptives: "Next time you donate, would you say you would rather donate to the Wikimedia Foundation that operates Wikipedia, or to the national chapter representing your country?" Donor Survey, supra note 1 (p. 14).

↑The question asked: "We are interested in your opinion on how the Wikimedia Foundation should spend money. If you donated 100 dollars to the Foundation, how would you like the foundation to allocate the money for the following? (Please ensure that all the responses add up to $100.)" Editor Survey, supra note 4 (p. 17).

↑The Wikimedia Germany Donor Survey 2011, supra note 3, did not directly address the choice between donating to the Wikimedia Foundation and Wikimedia Germany. That said, Wikimedia Germany’s projects received a high percentage of “Good” and “Very Good” ratings (p. 8).

↑That said, if chapters payment process, they will be required to emphasize more their local work in support of Wikimedia in the fundraising messages.

↑Jon Huggett, our consultant for the Movement Roles working group, supports the conclusion that a centrally-based payment processor is the model for an international internet-based charity like Wikimedia. According to Jon, traditional international charities aspire for a global coherence of a centralized payment processing model like the one we are discussing. This is not however the consensus view of the working group, which also noted many ways in which Wikimedia does not fit the mold of an 'internet-based charity'. For related work by Jon on Movement Roles, see http://meta.wikimedia.org/wiki/Movement_roles/Peer_organizations/Models

↑Per conversation with the Mozilla Foundation. The Mozilla Foundation used Blue State Digital for global payment processing in 2010, accepting payments in U.S. dollars. In 2009, the Mozilla Foundation allowed Mozilla Europe to collect payments, and both organizations used PayPal to process payments. Their FAQ has not been updated and erroneously refers to PayPal and Mozilla Europe. See Mozilla Foundation, Donation FAQ, http://www.mozilla.org/foundation/donate_faq.html. The link to donate to Mozilla Europe now redirects to their centralized Mozilla Foundation donation page.

↑Avaaz is not subject to tax deductibility because of its 501(c)(4) status. Avaaz interestingly explains: “Most charities offer tax deductibility for donations. But this means that they are, in a way, partially tax-payer funded, and governments use that to place a very thick set of rules on what they can and can’t do. Chief among them is restricting what they can say to criticize, support or oppose a politician. Avaaz is very rare in that our donations are not tax deductible, leaving us 100% free to say and do whatever we need to to get leaders to listen to people.” Id. (Reason 8).

↑A notice behind its “International” button says that non-U.S. donations are not deductible. See http://www.charitywater.org/donate/ (“Please note, only donations from within the U.S. are tax-deductible”).

↑For example, France allows for a tax deduction of 66% of the total value of the gift, up to 20% of a person’s personal income. Germany allows for tax deductions of the full amount gifts under € 1 million, up to a maximum of 20% of a person’s taxable income. The UK operates Gift Aid that allows the charitable organization itself to receive the tax deduction, adding about 25% to the value of a qualified donation. The Netherlands has a requirement that deductions be based on donations that fall within the range of 1 to 10% of a person’s gross income. As we understand, Sweden, Slovakia, Lithuania, Hungary, and Finland provide no tax incentives for donations. These data on tax deduction requirements were taken from The European Foundation Center’s legal and fiscal country profiles (2010), http://www.efc.be/Legal/Pages/FoundationsLegalandFiscalCountryProfiles.aspx.

↑See Peter Davy, “Jury still out over the power of tax perks” (March 1, 2010), http://www.efinancialnews.com/story/2010-03-01/governments-charity-tax-breaks; see also John Peloza and Piers Steel, “The Price Elasticities of Charitable Contributions: A Meta-Analysis,” in Journal of Public Policy & Marketing, Vol. 24, No. 2, pp. 260-72, (2005) http://www.journals.marketingpower.com/doi/abs/10.1509/jppm.2005.24.2.260 (“The effect of changes in tax deductibility has been one of the most widely studied areas in personal philanthropy. However, although the field has progressed significantly… there remains little consensus on the proper means of estimating elasticities, and there is serious debate about the effectiveness of changes in tax deductibility to provide a stimulus for increased charitable giving.”) (p. 269).

↑The German chapter’s Spendwerk Report does not appear to suggest otherwise with respect to smaller donations. In its words (p. 7): “Tax reductions are not a reason for normal small donors to increase their donation. Or, expressed differently, a state cannot arbitrarily increase the amount of donations through tax incentives. Donors give as much as they can and want to give. Nevertheless, deductibility does play an important role. The higher the donation, the more donors see if they can save on taxes. They did not donate because of the tax relief but they will take advantage of it if they can. This is especially true for Germany. The higher the donation, the more critical it is for the donor to see if it can be deducted for tax purposes.” http://upload.wikimedia.org/wikipedia/commons/a/a0/Spendwerk-Report.pdf For a discussion of the Spendwerk Report, please see Appendix B (thoughts on the Spendwerk Report).

↑Ayush Khanna, Who are Wikipedia’s donors? Answers from the readers study (February 5, 2012), http://blog.wikimedia.org/2012/02/05/who-are-wikipedias-donors/#d. This Reader Survey is distinct from the Donor Survey and Editor Survey, supra notes 1 and 4. The Reader Survey included 4000 respondents, 250 readers from each of 16 countries. 990 total respondents (those who did not plan to donate to Wikimedia Foundation in the future) answered the following question:Why have you chosen to not donate to the Wikimedia Foundation? Please choose all that apply. [QT=MS. RANDOMIZE]
a. I did not know Wikipedia is supported by a nonprofit organization
b. I never donate to charities
c. I can’t afford to make a donation
d. I donate my time instead of money
e. Donations to the Wikimedia Foundation are not tax-deductible where I live
f. I was never asked or don’t know how to donate to the Wikimedia Foundation
g. I disagree with Wikipedia’s policies and practices
h. I think my donation might not be used wisely
i. It seems that enough people are making donations to keep the projects running
j. Other [ANCHOR]
k. Prefer not to say [ANCHOR; MUTUALLY EXCLUSIVE]
Though probably not statistically significant given the low number of total respondents in each country, the percentages of respondents who checked the tax deductibility option (F8-e) by country were the following: AU (2%); Brazil (0%); CA (5%); DE (3%); Egypt (12%); ES (2%); FR (5%); UK (1%); India (1%); IT (7%); Japan (1%); Mexico (9%); Poland (9%); RU (4%); South Africa (9%); US (0%).

↑Specifically, Gift Aid allows charities to increase the value of monetary gifts from UK taxpayers by claiming back the basic rate tax paid by the donor. It can increase the value of donations by a quarter at no extra cost to the donor. In other words, a charity can reclaim tax from HM Revenue & Customs (HMRC) on the donation’s 'gross' equivalent - its value before tax was deducted at the basic rate (i.e., 20%). This means that for every £1 donated, the charity can claim an extra 25 pence. If a donor is a higher rate taxpayer, they too can benefit from tax relief as they can claim back the difference between the higher rate of tax at 40 per cent or 50 per cent and the basic rate of tax at 20 per cent on the total value of the donation - a total of 20 per cent and/or 30 per cent. So if £1 was donated, the gross donation would be £1.25, so a donor liable at the 40 per cent tax rate could claim 25 pence back (20 per cent of £1.25).

↑As reported to us, approximately 19,000 out of about 44,000 donors filled out the Gift Aid form in 2011. The chapter estimated that Gift Aid would yield about £ 87,000 (out of £ 873,000 donated online). For details, please see Appendix D (UK chapter summary on Gift Aid)

↑For example, a charity response cited in a government consultation in 2008 on Gift Aid argued: “It can cost more to administer a Gift Aid scheme than the amount that can be recovered…charity funds are being diverted to lawyers, VAT advisers and audit firms to work their way through the red tape involved in Gift Aid.” HM Treasury, Consultation on Gift Aid: the Government’s response (March 2008) (p. 16), http://www.ncvo-vol.org.uk/uploadedFiles/NCVO/What_we_do/Policy/Funding/Giving/080312GiftAid.pdf. See also ResPublica, Digital Giving - Modernising Gift Aid; Taking Civil Society into the Digital Age (p. 5) (September 2010), http://respublica.org.uk/documents/gsd_ResPublica%20Digital%20Giving.pdf (research suggests that small charities can be averted from claiming Gift Aid due to the onerous claiming process; 10% of the respondents to the research survey felt that their charity had lost money due to the complexity of the Gift Aid system).